Analysts Play Down Significance of Suit Against GameStop

Analysts played down the significance of a suit filed against GameStop in a Northern California U.S. District Court last week by a customer who accused it of “unfair, unlawful, deceptive and misleading practices.” The issue involved a used Electronic Arts (EA) game the customer was unable to download certain extra downloadable content for. GameStop was accused of violating California’s Unfair Business Practices Act and Consumers Legal Remedies Act. “We do not comment on current or pending legal actions,” GameStop spokesman Chris Olivera said Friday.

Wedbush Morgan Securities analyst Michael Pachter called the suit “silly,” predicting it will have “no impact” on GameStop. Sterne, Agee & Leach analyst Arvind Bhatia said, “It does not seem to us this lawsuit will be material."

James Collins of California claimed he decided to buy a used copy of the game Dragon Age: Origins from a GameStop store in Hayward, Calif., at about $55 -- $5 less than a new copy, “in part” because the game’s box indicated that he would be able to download an additional character and quest for free. But he found out “a couple of weeks later” that he wouldn’t be able to access “the full features” of the game, including that downloadable content he wanted, said the suit, filed Tuesday. That’s because EA made the extra content available via a special code only available to new purchasers of the title. Once the code is used, it can’t be used again.

Collins tried to return the game about two weeks after the purchase, but was told by a GameStop store manager that he couldn’t because it was past the seven-day return period for the game, the suit said. Collins was “forced to pay an additional $15” to get the downloadable features he wanted, he claimed. He wound up paying $10 more to buy the game than he would have if he bought it new from GameStop, the suit said.

Bhatia said GameStop addressed certain issues expressed in the suit in a recent earnings call. The second-hand game buyer tends to be “a value-oriented consumer,” GameStop Chief Operating Officer Paul Raines said (CED March 19 p7). The average price of a used Xbox 360 game is $20 -- much less than the $60 that new 360 releases cost, he said. Therefore, “we don’t believe that a $10 add-on piece of downloadable content is compelling to a used game buyer,” he said. However, the cost of used games that were recently released tend to be closer to the price of a new copy than older titles.

Bhatia said the issue “should be easily fixable with some sort of label” that GameStop could “put on the used copy that fully explains the situation.” GameStop is also “encouraging publishers to offer add-on content for new titles at a higher price and then a lower price option for used games,” Raines said on GameStop’s earnings call. Pachter predicted that used game prices “will find their equilibrium.”

Other games out now also only provide certain downloadable content to consumers who buy new copies of the title, including EA’s Mass Effect 2, Battlefield: Bad Company 2 and NBA Live 09, and Rock Band 2 and the AC/DC Live: Rock Band Track Pack from EA and MTV Games, the suit said. The only game cited that wasn’t from EA was Microsoft’s Gears of War 2. The percentage of games on the market now that offer such extra downloadable content only for new purchasers is small, but it’s likely that a growing number of games will be released using this strategy as EA and other publishers battle used game sales. Some publishers have claimed they lose money on the sale of used games, in part because they only make money off the initial purchase of a game and also because used game sales hurt the sale of new releases -- a charge that GameStop has claimed isn’t true. EA didn’t immediately respond to a request for comment, but wasn’t named in the suit.

"GameStop’s deceptive practices are compounded by the fact that consumers only have seven days to return” used videogames, but “many consumers do not realize” they can’t access the advertised downloadable content “until after the time to return the game has expired,” the suit said. GameStop makes more than 20 percent of its revenue and almost $2 billion from the sale of used games annually, the suit said. The retailer “is aware of this issue, and continues to fail to alert customers that this content is not available on used games,” the suit said. Therefore, “GameStop tricks consumers into paying more for a used game than they would if they purchased the same game and content new,” the suit claimed.

Collins sought class action status, a jury trial, and more than $5 million in damages. Barnes & Noble, GameStop’s former owner, was also named in the suit for reasons that weren’t specified. Comment wasn’t immediately available from it.